Solana's 50% Plunge: TVL Drop, Liquidity Shift, and Memecoin Collapse

Solana (SOL) price has plummeted by 50% since reaching an all-time high of $295 on January 19. The largest monthly drawdown since November 2022, when the FTX exchange collapsed, was a 42% decline in February. While uncertainty surrounding the 11.2 million token unlock and the LIBRA memecoin scandal may be contributing to the current decline, there are fundamental reasons behind the recent correction.

Solana's total value locked (TVL) has dropped by $5 billion since January 25, falling from a record high of $12 billion to $7.13 billion. This decline was led by Raydium, with a 60% drop in less than a month, and other major decentralized applications such as Jupiter DEX, Jito liquid staking, and Kamino Lending also registered significant declines. Consequently, Solana's onchain volumes have plummeted from a weekly collection of $97 billion in the second week of January to only $7 billion this week, indicating a shift in trust for the ecosystem and a massive decline in activity over the past month.

As SOL price and network activity collapsed, traders have shifted their liquidity to other chains, with over $500 million bridged to other chains in the last 30 days. Ethereum, Sonic, and Arbitrum are notable destinations for this outflow. Crypto analyst Miles Deutscher noted that Solana's fee burn dropped to its lowest value in a month, suggesting that many traders are losing interest in the network.

The collapse of the memecoin market has also contributed to Solana's decline. At its peak, the collective memecoin market cap stood at $25 billion in December 2024, but it has since crashed to $8.3 billion, with a 23% drop in the past 24 hours. While SOL is not a memecoin, the rise and fall of these tokens have affected its perceived valuation.

The recent correction in Solana's price can be attributed to a combination of factors, including a decline in TVL, reduced onchain activity, a shift in liquidity to other chains, and the collapse of the memecoin market. As the crypto market continues to evolve, investors should stay informed about these developments and conduct their own research before making investment decisions.